However, we are also already out of recession. GDP fell in March and April, then returned to weak growth in May as businesses began to reopen, and strong growth in June as the recovery really got underway.
It takes time for the data to be added up, and the ‘official’ definition of a recession really works best when looking at a normal business cycle, not the new world of a lockdown in which entire industries are switched off overnight.
It still means there is a big hole in the numbers. The economy’s output in June was barely bigger than during the worst months of the financial crisis.
But with the hospitality industry reopening in July, which is in the third quarter and so not seen in the official figures yet, the recovery should keep on going.
Compared to the gloomiest forecasts, even the dire number for the second quarter is something of a relief. The Office for Budget Responsibility said that a three-month lockdown could trash GDP by one-third, so a fall of a fifth shows the restoration of some life as normal.
Some people have been able to work from home throughout, plugging in a laptop and carrying on almost as normal. Others could do nothing – hairdressers, for instance, or some factory production line workers – but are now back to work.
Others still are trapped with nothing, such as bowling alleys, which are still shut.
Over the second quarter as a whole, accommodation and food services were hit hardest.
With pubs and restaurants closed, or reduced to a takeaway-only service, and hotels barred from taking guests, the vast majority of their business evaporated.
Output fell by 86.7pc for that unfortunate industry.
Manufacturing overall dropped by one-fifth. Within that, transport equipment production was cut almost in half, diving by 49.1pc as car factories and showrooms closed and customers delayed purchasing a new vehicle.
Construction was next with a fall of 35pc, then education close behind also losing more than one-third.
Big contractions also came in administrative and support services, down 30pc, human health and social activities, down more than a quarter, and professional, scientific and technical activities, which shrank by one-fifth.
Other industries fared better. Real estate, financial and insurance surveys, and agriculture were barely scathed, relatively speaking, with none of then contracting by more than 5pc.
Public administration and defence was the only industry to grow, eking out an expansion of 0.4pc.
But it is early days, and not all activity may return quickly. It could take time for people to be comfortable to return to cinemas and theatres, for instance. And if there is an increase in working from home, then the bus, rail and oil industries could all suffer long-term declines in demand.
In some industries, pent-up demand could help regain some of the lost activity from the lockdown. For instance, people who wanted to buy a car in April but had to wait a few months can still buy the car. Demand may also have risen beyond normal levels for products such as laptops as more people work from home.
Analysts at Citibank expect the economy to grow by 15.5pc in the third quarter.
On the other hand, other purchases that were not made in the lockdown are simply gone forever. People stuck at home will not buy so much petrol now to compensate for all the driving they didn’t do in April, for example.
It means GDP for the year as a whole will be well down on 2019’s level of output, even if the economy in December is back to the same size as it was in February.
HSBC’s economists think output over the year as a whole will be around 8pc smaller than it was last year, though there are significant risks it will be worse.
How will jobs fare?
Most people do not feel every bump or jump in GDP. What matters most is their job, their pay and the cost of living.
The Office for National Statistics estimates that around 12pc of employees at businesses are still on furlough, down from a peak of more than 30pc. Although that is a fall of almost two-thirds from its mean, it still means around 2.6m people are waiting to find out if their jobs will return.
The key test comes as the furlough scheme is wound down. Will the economy be back up and running strongly enough to re-absorb all of those workers, or will more lose their jobs?
From this month employers have to pay national insurance and pension contributions for their furloughed staff.
From next month they have to pay at least 10pc of their wages, rising to 20pc in October before the scheme comes to a close.
The Bank of England expects unemployment to peak at around 7.5pc, which is less bad than it previously anticipated. However it is still a sharp increase from below 4pc before the pandemic struck.
Do house prices fall in a recession, and will there be a crash?
Perhaps not, despite the size of the economic ructions.
House prices are linked to confidence in the economy: people will only offer what they think a property is worth, so if unemployment is rising and economic indicators are falling, prices will drop with them. During the 2008 financial crisis, property fell in value by 20pc in just 16 months.
If people are unable to pay their mortgage, or need to quickly free up cash by selling up assets, there will be forced sellers, who accept much lower prices. This is what typically pulls down prices, which then signals to buyers that they should demand deeper discounts, and so a cycle starts that can lead to a price crash.
Interest rates are now lower than in 2008, so people’s mortgages are generally more affordable. Since then, tougher mortgage regulation mean that buyers are less stretched, suggesting that there could be fewer forced sellers.
The mortgage payments holiday, used by almost two million homeowners, also reduced the pressure on family finances.
The market has rebounded remarkably strongly following the lockdown.
Back in March, more than 56,000 mortgages were approved for home purchase, according to the Bank of England. That tumbled to under 16,000 in April and just above 9,000 in May, which was far and away the lowest number on records dating back to the early 1990s.
By June it was back up to more than 40,000.
This is being seen in house prices.
Halifax’s index showed prices rose 1.6pc on the month in July, and are now up 3.8pc compared with last year. That does not look much like a crash.
The longer-term impact
GDP is surging now, closing some of the gap as the economy reopens, people get back to work and customers start spending again.
Haldane thinks the fall from February had been closed by half by late July, with GDP rising by around 1pc per week.
But even if lots of activity can restart, it cannot be guaranteed that every bit of spending will return quickly.
Businesses may be cautious about investing, having piled themselves up with debt to stay afloat. The fear of any second wave, future lockdown or sustained weak global growth could also give them pause for thought before taking any big spending decisions.
Shoppers, tourists and pub-goers may also be nervous about a full return to normal, with fears of crowds and with the miserable experience of sanitised socialising potentially combining to dampen spending.
The ‘eat out to help out’ scheme aims to overcome those nerves, tempting families out through August. So far it seems to have helped, with more than 10m meals eaten with the discount of up to £10 in its first week.
The Bank of England expects a reasonably quick recovery, but still thinks GDP will not get back above its level at the end of last year until the end of 2021. Effectively growth will have taken a two-year hiatus, with a lot of worry and uncertainty in between.
The country will also be left with a lot more debt.
Office for Budget Responsibility forecasts indicate the budget deficit will hit £322bn this year, equivalent to 16pc of GDP and the highest borrowing in peacetime history.
The exact level depends on the speed of the recovery, as tax revenues plunge along with GDP, and Government spending surges as it tries to protect the economy, give the NHS more cash and cope with higher unemployment.
Business borrowing is also up. Net lending to UK corporates in March alone was £32bn, the Bank of England said, more than 30 times its usual monthly level.
In May and June lending to small businesses hit record highs of £18.5bn and £10.7bn respectively as companies used Government schemes to borrow to stay afloat.
By contrast household finances are improving, on aggregate at least, with higher-paid workers in particular saving more through the lockdown as spending opportunities dried up.
Bank of England data indicates overall household bank account balances swelled by an average of £17bn per month from March to June, compared to a ‘usual’ rate of £5bn per month. Credit card debts have also been paid down with vigour through the crisis.
As a nation, we will be paying for this recession for many years to come.
How will the recession affect you? Tell us your concerns in the comments section below
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